EghtesadOnline: The government proposal to put an end to subsidized forex currency in essence means it wants the Majlis to accept allocation of more cheap currency, a lawmaker says.
Unofficial reports making the rounds in the local media Wednesday said that the Raisi administration has submitted a bill to the parliament calling for getting rid of the costly subsidy policies.
In mid-2018 the former government subsidized the scarce foreign currency for importing basic goods ($1=42,000 rials). This rate now is almost a seventh of the prices in the open market.
Mohsen Zanganeh, a member of the Majlis Plan and Budget Commission said in the bill the government is looking for parliamentary approval to raise the ceiling for cheap currency allocation by the time the fiscal year ends in March 2022.
“Provisions of the bill call for increasing subsidized currency by $4.6 billion,” he was quoted as saying by IBENA, the news agency of the Monetary and Banking Research Institute.
The government can either continue the existing practice and sell cheap currency to importers or give them in cash subsidy to the people, he added.
“This [government entreaty] is not what the media billed as eliminating the forex subsidy policy. To eliminate subsidized currency, the government does not need to submit a bill to the Majlis.”
According to the 2021-22 budget, the government must not earmark more than $8 billion in cheap currency to import basic goods and pharmaceuticals.
With four months before the fiscal year ends, the government says it needs more cheap currency to cover critical imports.
According to Zanganeh, cheap currency is given only for medicine, wheat, oilseeds and livestock. The government apparently plans to terminate forex subsidies for some items and instead pay cash to the people.
“In the bill the government has sought permission to grant 270 trillion rials ($1 billion) in cash subsidy and end cheap currency for some items,” the MP said. He did not elaborate.
$8.8b Given in 7 Months
According to Mehrdad Jamal Arvanaghi, a technical deputy of the Islamic Republic of Iran Customs Administration, 14.37 million tons of essential goods worth $8.8 billion were imported in the first seven months of the calendar year (March 21-Oct. 22) -- a growth of 25% and 95%, respectively, compared to the similar period of last year.
“Wheat import increased 15%, barley 91%, oilseeds 56%, vegetable oils 170%, soymeal 136% and pharmaceuticals by 3% y/y.
Field corn import was the only item that declined [19%],” Arvanaghi said.
The highly controversial subsidy policy is often blamed for wasting scarce foreign reserves that is in the interest of vested interests, avaricious traders, middlemen and the army of rent-seekers.
In the past several months the local press has focused on the billions of dollars in subsidized currency given specifically to importers of food and medicine while some fraudulent companies simply did not bring anything into the country.
Cheap currency is sourced from oil export and used only for importing basic necessities to avoid steep price hikes in food and raw materials.
While governments as a matter of policy over decades have subsidized food imports, cheap currency in its current form was given after the steep rise in forex rates in the spring of 2018 and after Donald Trump, the former controversial US president, imposed new economic sanctions.